Economics for Managers ECO 6301 Unit III Essay

Unit III Essay

This 3-to-5-page essay measures your mastery of ULOs 1.1, 1.2, 2.1, 6.1, 6.2 and 7.1.

Elasticity

Assignment objective: Unit I introduced the benefits of markets to improving outcomes for producers and consumers. Unit II examined the role of costs and prices in decision-making. For this assignment, you will answer a series of questions in the form of an essay.

Length: Your submission is required to be at least 3 pages in length and not more than 5 pages, not counting the title page and references page.

References: A minimum of 3 peer-reviewed sources are required, any additional resources used are required to be scholarly/academic in nature and found in the CSU Online Library. APA Style is required for citations and references.

Definitions: Scholarly journals are sometimes called academic journals. The terms are often used interchangeably to describe the same type of publication. These types of publications are published by universities, academic institutions, professional associations, and commercial enterprises and are compiled by scholars, academics, and other subject authorities.

Details: In your paper, include the following:

1. Introduction

2. Research elasticity information for two particular goods: one with an elastic demand and one with an inelastic demand. Using elasticity information you gather, predict changes in demand. The United States Department of Agriculture website has a good resource to help with this.

3. Describe how marginal analysis, by avoiding sunk costs, leads to better pricing decisions.

4. Explain the importance of opportunity costs to decision-making and how opportunity costs lead to trade.

5. Evaluate how better business decisions can benefit not just the producer but the consumer and society as a whole. In your evaluation, contrast the deontology and consequentialism approaches to ethics.

6. Conclusion

SOLUTION

The Role of Elasticity and Economic Decision-Making in Managerial Economics

Introduction

In the realm of managerial economics, understanding how consumers respond to price changes is vital to strategic business decision-making. Concepts such as price elasticity of demand, marginal analysis, sunk costs, and opportunity costs are instrumental in maximizing both profitability and resource efficiency. This paper explores elasticity by analyzing two specific goods—one with elastic demand and one with inelastic demand—and uses this foundation to explain better pricing decisions. Additionally, the paper will investigate how marginal analysis and opportunity cost frameworks enhance economic outcomes for producers, consumers, and society. Finally, an ethical evaluation contrasting deontological and consequentialist approaches will demonstrate the broader implications of sound economic decision-making.

Elasticity of Demand: Elastic vs. Inelastic Goods

Price elasticity of demand (PED) refers to the degree of responsiveness in the quantity demanded of a good to a change in its price. Goods with elastic demand see significant changes in quantity demanded when prices shift, whereas inelastic goods experience minimal demand fluctuation despite price changes.

A clear example of an elastic good is restaurant dining. According to data from the USDA Economic Research Service (2022), expenditures on away-from-home food are highly sensitive to price changes, especially during economic downturns. If restaurant meal prices rise by 10%, the quantity demanded may fall by more than 10%, indicating elasticity.

Conversely, insulin represents a highly inelastic good. Diabetics require insulin regardless of its price, and thus, the demand remains steady even when prices rise. This inelasticity makes insulin an essential good but also raises ethical questions regarding pricing power and market regulation (Pauly & Burns, 2008).

Predicted Changes in Demand:

For elastic goods like restaurant meals, an increase in prices will likely lead to a considerable drop in demand.
For inelastic goods like insulin, demand will remain relatively unchanged, even in the face of steep price increases.

Understanding these elasticity characteristics allows businesses to better forecast revenue and adjust pricing strategies based on consumer behavior.

Marginal Analysis and the Avoidance of Sunk Costs

Marginal analysis involves evaluating the additional benefits and costs of a decision. It emphasizes forward-looking decision-making by ignoring sunk costs—costs that have already been incurred and cannot be recovered.

For example, a manufacturing company may have invested $1 million in developing a prototype that ultimately proves inefficient. Continuing production simply because the initial investment was high would be irrational. By ignoring the sunk cost and focusing instead on marginal costs and benefits, the company can make better decisions about allocating resources to more profitable ventures (Frank, Bernanke, Antonovics, & Heffetz, 2019).

This principle leads to more accurate pricing decisions by ensuring that companies do not allow past expenditures to dictate current or future pricing, which could otherwise distort profitability and competitiveness.

Opportunity Costs and Trade Decisions

Opportunity cost is the value of the next best alternative foregone when a choice is made. In decision-making, considering opportunity costs allows managers to allocate resources more effectively.

For instance, if a company has to choose between expanding its domestic operation or entering a foreign market, the opportunity cost is the forgone benefits of the option not chosen. Understanding this helps firms prioritize strategies with higher returns or strategic value.

In terms of trade, opportunity costs explain comparative advantage. If one country produces wheat more efficiently and another produces electronics more efficiently, both can benefit by specializing and trading—each leveraging its lower opportunity cost (Mankiw, 2021). This principle not only enhances economic efficiency but fosters global cooperation and prosperity.

Better Business Decisions: Impacts on Society and Ethics

Sound business decisions based on elasticity, marginal analysis, and opportunity costs do not only benefit the firm. When companies price goods efficiently, allocate resources wisely, and avoid waste, they reduce prices for consumers, increase product availability, and improve societal well-being through innovation and competition.

This brings us to ethical evaluation. Consequentialism focuses on the outcomes of decisions. From this perspective, if better decisions result in greater societal good, such actions are ethically justified. For instance, lowering prices for insulin to ensure access might reduce short-term profits but maximize public health outcomes—a positive consequence.

In contrast, deontology focuses on duties and principles rather than outcomes. A business might feel a duty to maintain fair pricing, regardless of the financial impact. In the case of essential goods like insulin, deontology would argue for affordability based on a moral obligation to preserve life, not just profit margins.

Both perspectives underscore the moral dimensions of economic decision-making, especially in industries dealing with inelastic and life-dependent goods.

Conclusion

Elasticity, marginal analysis, sunk costs, and opportunity costs are foundational to informed managerial decision-making. Through practical examples such as restaurant dining and insulin pricing, this essay has shown how responsiveness to price and cost structures shapes outcomes in markets. Moreover, ethical frameworks such as consequentialism and deontology deepen our understanding of how economic decisions affect not just firms, but society at large. Managers who apply these tools thoughtfully can drive better business outcomes, foster consumer trust, and contribute to societal welfare.

References

Frank, R. H., Bernanke, B. S., Antonovics, K., & Heffetz, O. (2019). Principles of Economics (7th ed.). McGraw-Hill Education.

Mankiw, N. G. (2021). Principles of Microeconomics (9th ed.). Cengage Learning.

Pauly, M. V., & Burns, L. R. (2008). Price elasticity of demand for prescription drugs. Health Economics, Policy and Law, 3(4), 373–387. The Role of Elasticity and Economic Decision-Making in Managerial Economics appeared first on Skilled Papers.